Argentina, Turning the Corner, Leans to Its Left

By LARRY ROHTER

Published: May 18, 2003

BUENOS AIRES—
THE day after Néstor Kirchner qualified for a presidential runoff vote here late last month, the stock market plunged more than 8 percent. Investors who had been expecting a second round for a pair of more market-friendly candidates were disconcerted by the strength shown by Mr. Kirchner, the little-known Peronist governor from Patagonia with the populist image.

Now, Mr. Kirchner, 53, is about to become president of this ravaged country, catapulted into power by the unexpected withdrawal on Wednesday of Carlos Saúl Menem, Argentina's president during the 1990's. But on Thursday and Friday, the peso fell by a total of 5 percent against the dollar, reflecting the market's jitters about Mr. Kirchner's warning that ''I will not be prey for corporations'' and his attack on ''groups and sectors of economic power that benefited from unacceptable privileges during the past decade.''

When he takes office a week from today, Mr. Kirchner will inherit a situation that is alarming but nowhere near as desperate as it was a year ago. With the Argentine economy finally showing signs of bouncing back from the worst crisis in the country's history, the question on the minds of investors and economists is this: Will he make things better, or will he make them worse?

American companies have a significant stake in any recovery here: in recent years they have consistently supplied a fifth of Argentina's imports, which fell to $8.9 billion in 2002 from $20.3 billion in 2001, as a result of the economic collapse last year. They also accounted for a fifth of all foreign investment. In addition, American banks, bondholders and pension funds are among the largest holders of the public debt on which Argentina defaulted in December 2001.

The challenges confronting Mr. Kirchner, whose administrative experience consists of 12 years as governor of a province of less than 200,000 people, are daunting. He must resolve disputes on compensating banks and utilities, force powerful provincial governors to reduce spending and begin negotiations on a standby agreement with the International Monetary Fund -- all at once and all within a short time, without the benefit of a resounding election triumph.

''The timetable is important,'' said Rafael Ber of Argentine Research, a market analysis firm here. ''He needs to get the economy growing again, and he is going to have a short, short, short honeymoon -- three months at the most. Everyone wants results in the shortest possible time.''

The most pressing concern, of course, is the country's debt burden, which has risen to more than $170 billion, the equivalent of nearly 140 percent of gross domestic product, since a default was announced late in December 2001. A rollover agreement reached with the I.M.F. in January this year expires barely two months after Mr. Kirchner takes office, and the new administration is scheduled to pay about $9 billion back to multilateral lenders by year-end.

STILL, Argentina has already confounded pessimists who predicted that the country would collapse unless it moved quickly to reach an agreement with the I.M.F. In fact, the economy is expected to expand 4 to 6 percent this year. Tax receipts are zooming, consumer confidence is up, and inflation has leveled off at less than 20 percent.

''The economy is remarkably stabilized,'' Anne O. Krueger, deputy director of the I.M.F. and one of Argentina's most implacable critics last year, said in an interview this month with La Tribune, a French financial newspaper. The interview has been widely cited by government officials here as proof that they were correct to resist the fund's demands for sharper spending cuts. ''To the surprise of everyone, including myself,'' she said, ''Argentina has returned to growth, without falling into hyperinflation.''

But what does Mr. Kirchner plan to do? In the wake of his cruise to victory, market analysts here and abroad are trying to decipher his record and his campaign talk. They have found some of it frankly alarming: he has hinted, for instance, that he might nationalize the country's railways and has also talked of repudiating that part of the foreign debt he considers ''illegitimate.''

''We are not disposed to do everything to continue paying international creditors at the expense of the hunger of Argentines,'' Mr. Kirchner said in a meeting with the foreign news media here late last month. ''We are going to insist on a considerable reduction in the debt and interest rates and a rescheduling'' that will ''allow Argentina to rearrange its external accounts.''

On the campaign trail, Mr. Kirchner has defined his economic philosophy as ''neo Keynesian'' without providing much in the way of specifics. But he has talked, of a huge public works effort to lift the country out of nearly five years of recession, led by a program to build three million new homes, which he says will create five million jobs in a country where the unemployment rate has been running at record rates of more than 20 percent.